Does My Credit Score Matter When Someone Cosigns a Car Loan for Me?

by Mark Kennan

Even with a co-signer, lenders will still look at your credit score.

When you're young, it's hard to get a loan in your own name, especially if you haven't built up much credit history and are still earning an entry-level position salary. To get a car loan, you might need a co-signer with a good credit score. Even if you have a co-signer on your car loan, your credit score might still matter, depending on the lender.

Primary Borrower Significance

When you're taking out a car loan in your name, the bank wants to see that you're a credible borrower. One way to do that is to look at your credit score. According to Quicken Loans, if your credit score is under 500, you're unlikely to get a car loan even at a very high interest rate. In this case, you will probably need a co-signer if you want to drive a car off the lot.

Benefits of Cosigner

When you have a co-signer, the bank knows that it can go after that person for the debt if you don't make the payments. Moreover, if the cosigner has a good credit score and strong employment history, the lender is more likely to give you a loan at a lower interest rate than if you applied on your own. However, it's going to take a co-signer with a great credit score and substantial disposable income if your income and credit score clearly won't cut it.

Other Ways to Help

While getting a cosigner is the surest way to get a car loan if you don't have a strong credit score, there are other ways for you to improve your chances of getting approved. First, save up for a larger down payment. When you borrow a smaller percentage of the purchase price, you're a lesser risk to the lender because it's more likely that a repossession and sale of the car will cover your debt. Second, take care to pay your current debt on time to build a positive credit history.

Cosigner Cautions

Be careful about asking someone to cosign a loan for you. If the person is nice (or crazy) enough to agree, take your responsibility to pay the loan back seriously. If you make late payments, you don't only hurt your own credit score -- you also hurt the credit score of the person who cosigned for you. Worse, if you default on the loan, the cosigner is on the hook for the balance. If that happens, your relationship is likely to take a turn for the worse.

References

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."